Mutual interests

Japan and India are the two oldest democracies in Asia and among its three biggest economies. The relationship between the two countries "will be a force of peace, stability and prosperity" in the region and the world, said Indian Prime Minister Narendra Modi on September 1 during a five-day tour of Japan, his first major foreign trip since taking office.

By going to Japan from August 30 to September 3 and extending his stay by an additional day, experts say, Modi clearly signaled how important New Delhi's relations with Tokyo are to him.

And the Indian premier has certainly won over Japanese public opinion, visiting local schools and historic sites, explains Shihoko Goto, senior Northeast Asia associate at the Washington-based Woodrow Wilson Center for Scholars. But the significance of the bilateral ties goes far beyond any public relations campaign, she added.

For both Modi and his Japanese counterpart Shinzo Abe, boosting Indo-Japanese trade and investment has become a strategic priority. In 2013, commerce between India and Japan amounted to a relatively low 15.8 billion USD. At the same time, Japanese Foreign Direct Investment (FDI) flows to countries such as Thailand, Singapore, Indonesia and Vietnam exceeded flows to India. But the two leaders have agreed this should just change.

Promises

After holding summit-level talks with the Indian PM, Abe pledged around 33.5 billion USD in the form of investments and loans to the South Asian nation. Likewise, he promised about 480 million USD for the development of infrastructure and a doubling of both the country's direct investment and the number of Japanese firms operating in India, within the next five years. Abe also offered cooperation in areas such as atomic energy and high-speed rails.

At the same time, Modi announced the setting up of a special team in his office to facilitate Indo-Japanese trade. Addressing Japan's business community in Tokyo on September 2, he said India will roll out the "red carpet, not red tape" for Japanese corporates who choose to set up shop in Asia's third largest economy.

Takaaki Asano, political analyst at the Japanese think tank "The Tokyo Foundation," told DW that many in the business sector were impressed by Modi's strong leadership style. However, it is still unclear how far his rhetoric will translate into real action on the ground in terms of easing trade and investment barriers, said Asano, who attended the gathering.

Economic synergies

The analyst also stressed that although there may not be an immediate rise in the number of Japanese firms willing to shift their production bases to India, the South Asian nation could become a favored investment destination in the long run given its vast market and large pool of skilled labor.

Experts believe there are synergies between the two economies. While India has low labor costs, Japan has advanced technology and manufacturing processes, but a shrinking population, explains Bharat Karnad, political analyst at the New Delhi-based Centre for Policy Research. This symbiosis would "quickly transform India into the 'workshop' of the world - a position China has held since the early 1980s," he told DW.

Besides economic ties, India and Japan have an array of common interests as they face the challenge of China's growing influence and assertiveness in the region. Both nations have ongoing territorial disputes with Beijing. While China claims most of the Indian state of Arunachal Pradesh, it is engaged in a bitter dispute with Tokyo regarding the sovereignty of an island chain in the East China Sea.

Given Japan's tensions with neighboring China, its closeness with India have been welcomed by both Japanese politicians and businessmen, said Northeast Asia expert Goto, adding that Japan and India together are in a better position to challenge the idea of an Asia dominated by Beijing.

Defense ties

Goto stressed that prospects of greater Indo-Japanese military cooperation are particularly noteworthy. During their talks, both Modi and Abe agreed to strengthen strategic relations and accelerate negotiations on the possible sale of an amphibious aircraft to India's navy.

"Japnese arms exports to India are long overdue and show Tokyo's growing self-confidence and unwillingness to continue bearing the guilt for the Second World War," said analyst Karnad.

Meanwhile, India is soon expected to allow rare earths to be exported to Japan, which is a market currently dominated by China, Goto pointed out. Rare earths are needed to make almost anything with computerized systems, including consumer electronics and cars - mainstays of Japan's export sector.

Beijing blocked rare earth exports to Japan in September 2010, after a Chinese fishing boat collided with Japanese coast guard vessels near disputed islands in the East China Sea. And Tokyo has been trying to find alternate sources of supply ever since.

However, there are limitations to the Indo-Japanese partnership as evidenced by the non-conclusion of a much hyped civilian nuclear deal between the two countries. Although Abe and Modi claimed "significant progress" in the negotiations had been made, no deal was agreed upon.

Karnad believes nuclear trade is not and never will be central to the economic relationship between the two Asian countries. He explains that India's nuclear program is run on an indigenously developed plutonium fuel cycle, while Japan's is based on enriched uranium-powered reactors; and "there's no match between the two," Karnad added.

Strategically important

But the expert is of the view that these ties are of paramount geostrategic importance. "These two economically strong and militarily muscular nations at the two ends of the continent can keep the Chinese armed forces stretched and thus ring-fence Beijing's ambitions and plans to dominate Asia by aggressive posturing and actions," he argued.

The closer Indo-Japanese ties, however, haven't gone unnoticed in Beijing. China has already made public its dismay over stronger relations between Japan and India, and has accused Tokyo of dividing Beijing and New Delhi, said analyst Goto.

The Tokyo Foundation's Asano points out that New Delhi is much more inclined towards economic ties with Tokyo than towards strategic and military relations. In fact, both Japan and India enjoy better commercial ties with China than with each other. India's trade with China, for instance, stood at some 65.5 billion USD in 2013, three times larger than that with Japan.

Nevertheless, Goto is of the view that the close ties between the two major Asian democracies "provide relief to the US at a time when Washington's pivot to Asia is facing increased budgetary and political constraints, as well as ever-growing conflicts outside of the region."